'Avoid' Tribhovandas Bhimji Zaveri IPO: KR Chokey

KR Chokey Research has recommended investors to 'avoid' the initial public offering of Tribhovandas Bhimji Zaveri (TBZ), which will hit the primary market Tuesday to raise Rs 210 crore. The brokerage said the IPO is priced on the higher side compared to peers.

"The annualized earnings on diluted equity for FY12E is Rs 10.1 valued at a P/E of 11.9-12.5x. We believe the company is priced on the higher side with peers trading at P/E of 4-7x FY12E earnings. Hence we recommend to 'avoid' the issue," a KR Chokey report said.

Peers like Gitanjali Gems and Thangamayil Jewellery are available at a FY12 P/E of 6.3 and 3.5, respectively, while Titan Industries has a P/E of 35.8.

According to the report, a prolonged decline in the price of gold and diamonds would have an adverse effect on the value of inventory, which in turn would lead to a negative impact on operations and financials.

TBZ has not identified exact locations for the proposed expansion in stores which could delay or increase costs and, consequently, affect the business.

The price band of the IPO is fixed at Rs 120-126 per share. The proceeds will be used to finance the establishment of new showrooms; it plans to open new 44 showrooms (26 large format high street showrooms and 18 small format high street showrooms) by the end of fiscal 2014.